Distributed ledger technology (DLT), also called blockchain technology, will hit new strides of development in 2019. Most of that new focus will be on tokenizing assets (tokenizing is the representation of fiat currencies or digital/physical assets as tokens which can then be traded or sold on a network).
Anything from jewelry to artwork to real estate can be represented as cryptographically hashed assets on an open, peer-to-peer electronic network which has no central authority (like a bank) to govern trades or sales. Cryptocurrencies can solve problems in the global financial system, including no-fee cross-border payments.
A recent report from auditing and business services firm KPMG report estimates the cryptocurrency market capitalization at roughly $211 billion.
KPGM argues that “Crypto assets may change the financial services landscape significantly with the emergence of the tokenized economy. While it is still early stages and it is hard to predict how the next 10 years will play out, the tokenized economy will likely be one of the more impactful innovations enabled by crypto.”
Representing physical or digital assets as tokens on one of these DLT-based networks allows participants to develop new business models and reinvent processes.
Industry insiders agree that blockchain technologies, like augmented reality (AR) and artificial intelligence (AI) will likely be rejected by enterprises unless and until they can start solving real-world problems. So DLT hasn’t made a revolutionary impact on any process or industry yet, arguing for a realistic approach to marketing would be beneficial to the emerging blockchain industry.
New ownership and service models are already gaining momentum.
Blockchains which tokenize real estate are springing up everywhere. They allow consumers and traditional investors to buy shares of a property and, in return, receive a return on mortgages or rents. The money paid for the shares allows property owners to make additional investments.
Securitize, Polymath, and Harbor leads the industry’s blockchain networks which enable assets like commercial buildings to be tokenized and transformed into tradable securities.
But there is a drawback to buying shares of a single property; trusting the owner’s claim of equity. If a building owner owes the lender 70% of the property value, the actual equity, an investor will own amounts to far less than the total value of the building. There could also be liens or other encumbrances on the building that the investors may not be aware of.
Scamming has long been a societal problem, but it’s exploded since the advent of the internet. So experts agree that it’s only a matter of time before security tokens are the subject of such criminality. Some governance by the Securities and Exchange Commission seems inevitable.
If used lawfully, however, these shares (represented by coins) can then be used as securities for obtaining loans or as a financial asset which delivers a return. Large investors may get a return on 90% of the asset. Small investors may receive returns based upon smaller portions of the same asset.
The service is free to property owners who place their real estate equity in the pool.